Under 15and/or

Institutionalized (5.3 million)

Not inlaborforce

(9.3 million)

Employed(17.3 million)

Unemployed(1.4 million)

Total population (4.3 million)

Labor force (18.7 million)

Unemployment rate =

1.4 million

18.7 million

X 100 = 7.4%

Unemployment rate =

# of unemployed

labor force

X 100

LO2 1©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2

How the unemployment rate is understated:• Part-Time Employment Statistics• Discouraged Workers

2©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2

Frictional Unemployment caused by workers voluntarily changing jobs and by

temporary layoffs; unemployed workers between jobs

Structural Unemployment caused by Changes over time in consumer demand

and in technology alter the “structure” of the total demand for labour, both occupationally and geographically

Cyclical Unemployment caused by a decline in total spending (or by

insufficient aggregate demand) Seasonal Unemployment

caused by seasonal factors3©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2

Natural rate of unemployment (NRU)NOT zero unemploymentOccurs when there is no cyclical

unemploymentNot automaticVaries over time

4©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2

GDP Gap GDP gap = actual GDP – potential

GDP Can be negative or positive

Okun’s Law Every 1% of cyclical unemployment

creates a 2% GDP gap

5©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2

6©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2

Given for 2009: Unemployment rate is 8.3% Natural rate is 6.5% Potential GDP is $1360 billion

What is the GDP gap? 8.3% 6.5% = 1.8% (gap in % terms) 1.8% X 2 = 3.6% (apply Okun’s Law) 3.6% of $1360 billion = $49 billion

7©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2

Unequal Burdens Occupation Age Gender Education

8©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2

9©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2

Unemployment means idleness Increases poverty, heightens racial and

ethnic tensions, and reduces hope for material advancement

Severe unemployment can lead to rapid and violent social and political change

higher unemployment linked to increases in suicide, homicide, and physical and mental illness

10©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2

11©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2

12©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2